Indian regulators are leaning toward banning private cryptocurrencies like Bitcoin and Ethereum, highlighting the advantages of Central Bank Digital Currencies, the CBDCs.
Government’s view on crypto and CBDCs, can you guess which one is the favorite?
Anonymous officials revealed that discussions have concluded the risks associated with private cryptocurrencies outweigh their benefits.
This viewpoint aligns with India’s adoption of a synthesis paper by the International Monetary Fund and the Financial Stability Board in September 2023.
Officials noted that while this paper suggests minimum regulatory standards, it doesn’t stop countries from enforcing stricter measures, including total bans.
“CBDCs can do whatever cryptos do. In fact, CBDCs have more benefits than cryptos, minus the risks associated with private cryptocurrencies.”
Shaktikanta Das, Governor of the Reserve Bank of India highlighted the potential of CBDCs for financial inclusion during a conference.
The digital rupee has already attracted over 5 million users, and 16 banks have joined since its pilot launch in late 2022.
The State Bank of India is also exploring applications for CBDCs, launching a pilot project in Odisha and Andhra Pradesh aimed at lending to tenant farmers through programmed end-use credits.
Ever-changing crypto industry
India’s attitude toward cryptocurrency shifted dramatically since 2013 when the RBI first warned about virtual currencies.
Since then, the country has taken various actions and made regulatory changes.
The demonetization in 2016 boosted interest in crypto as digital payments became more popular.
Yet, in April 2018, the RBI banned banks from facilitating crypto transactions, which impacted trading volumes big time.
A change occurred in March 2020 when India’s Supreme Court lifted the RBI’s ban, declaring it unconstitutional.
This ruling allowed crypto exchanges to operate again and sparked renewed trading activity.
Following this, the government proposed a new bill to regulate cryptocurrencies while distinguishing between private cryptocurrencies and state-issued digital currencies.
Grey zone
Cryptocurrencies now aren’t recognized as legal tender in India, but the country has established a tax framework for them.
Since the 2022 budget, crypto has been classified as Virtual Digital Assets, which includes 30% tax on profits from trading or spending.
This applies whether the income is considered capital gains or business income.
A 1% Tax Deducted at Source is also enforced on all crypto transactions exceeding INR 10,000 within a financial year.
